Land Values Downshift

A strong start to 2013 ends in single-digit annual gain

The farmland value shift is on. This summer, demand for farmland dropped when grain and soybean prices took a nose dive on expectations of a record crop.

How long the downshift will last is anybody’s guess. Farm real estate brokers, farm managers and other farmland market professionals point to projected lower commodity prices for 2014 and beyond as likely influences to dampen land buying enthusiasm.

The annual Iowa Land Survey conducted by Mike Duffy at Iowa State University found the state’s farmland reached a historic high of $8,716 an acre through November. That is a 5.1% annual increase. This is only the second time since 2003 that Iowa farmland value did not post a double-digit gain, Duffy adds. The other exception was 2009, with a 2.2% decline.

Land values rose early in the year due to the strong commodity prices, "but as commodity prices fell this summer, so did the demand for land. Hence, most of this year’s 5.1% increase occurred early in the year," he notes.

"The 2013 land value survey shows a market in flux, with strong and weak price sales occurring at the same time," he observes. "The key question is if this shows the market is going to settle, if it is just pausing before another takeoff in values, or if the market has peaked and due for a correction."

Prices level out. Recent data from Midwestern Federal Bank Reserves show the most drawback came in the third and fourth quarters of 2013.

Even so, farmland values are still up on an annual basis. The Federal Reserve Bank of St. Louis reports cropland in the southern Corn Belt is up 9% compared with a year earlier. In Minnesota and the Northern Plains, the value of dryland cropland is up 18% versus a year ago, reports the Federal Reserve Bank of Minneapolis.

In the Central Corn Belt, the Federal Reserve Bank of Chicago reports values are up 14% versus a year earlier. The Federal Reserve Bank of Kansas City reports dryland cropland is up 19% and irrigated cropland is up 21.5% annually.

While the evidence points to leveling out or even a correction in farmland values, that pattern is not spread evenly across the Midwest. The Iowa and southeastern Minnesota markets showed more weakness relative to other areas of the Corn Belt. The accented weakness is due to a taxing planting season, which resulted in delayed planting or farmers taking Prevent Plant insurance, followed by a flash drought in late summer.

Indiana, however, which enjoyed excellent crops, saw stronger demand as a result. The Chicago Fed reports values rose 2% on a quarterly basis during the third quarter.